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My fellow Forbes contributor Rick Ungar has hit a nerve with his piece entitled “Hobby Lobby Invested In Numerous Abortion And Contraception Products While Claiming Religious Objection.” Quoting liberally from an earlier report in Mother Jones, Mr. Ungar states that it may be “the most stunning example of hypocrisy in my lifetime” that Hobby Lobby invests its retirement fund in a “wide variety of companies producing abortion and contraception related products” while simultaneously fighting in the Supreme Court for the right to not provide insurance coverage of such products through its group health insurance plan.

Unfortunately, these and many other articles demonstrate a naive understanding of the regulatory environment in which 401(k) plan sponsors operate. Thus, the main casualty of the characterization of Hobby Lobby as “hypocritical” is the public’s understanding of the U.S. retirement system.

The purpose of this post is not to applaud or defend Hobby Lobby or this week’s SCOTUS decision. Plenty of other commentators on both sides of the ideological divide have spilled plenty of ink on these broader issues. Besides, I contribute to Forbes because I am an expert on pensions, not religious freedom, women’s rights, or constitutional law.

Rather, the purpose of this post is simply to set the record straight on what Hobby Lobby can and cannot do when it comes to restricting the investment options on its 401(k) plan menu. The facts suggest that many of the commentators claiming hypocrisy have a limited understanding of U.S. pension law.

So here are some facts:

1. It is individual employees, not the owners of Hobby Lobby, who make the portfolio allocation decisions. The Hobby Lobby retirement plan is a 401(k), which the IRS defines as “a defined contribution plan where an employee can make contributions from his or her paycheck either before or after-tax, depending on the options offered in the plan. The contributions go into a 401(k) account, with the employee often choosing the investments based on options provided under the plan.” (Emphasis added). In other words, it is the workers who participate in the plan – not Hobby Lobby owners or managers – that make investment allocations.

2. The 401(k) plan assets are held in broadly diversified mutual funds, not in direct holdings of the companies that make contraceptive devices. Through rather artful wording, some commentators have left the impression that the owners or managers of Hobby Lobby have actively invested millions in the companies at issue. In fact, Hobby Lobby – presumably working with independent investment plan consultants like most large companies do – chose a set of mutual funds that invest in hundreds of companies. The funds selections should be based on risks, returns and expenses and other investment-related factors, as any plan sponsor is required to do under federal law.

3. Those who choose the investment options can be held personally liable for ensuring that the investment options on the 401(k) menu are selected in the exclusive best interest of the participant. Although the owners of Hobby Lobby do have the ultimate responsibility to select investment options for their plan, they must select options based solely on a set of criteria that are related to the retirement outcomes of the participants. They may not sacrifice returns or take on more risk, for example, just to pursue their personal religious preferences.

Hobby Lobby (Photo credit: m01229)

4. Although plan sponsors are permitted to include some investment options that “negatively screen” companies with certain characteristics, it would be nearly impossible to construct an entire plan menu in this way. Long before the debate over Hobby Lobby took center stage, a range of companies have offered “socially responsible investment” funds that drop from their portfolio stocks in companies that engage in certain activities or fail to meet certain environmental or labor standards. The Department of Labor, which is charged with policing compliance with fiduciary obligations of plan sponsors, ruled that: “The plan's fiduciaries may not simply consider investments solely in green companies. They must consider all investments that meet the plan's prudent financial criteria.”

Richard Wilberg, Vice President of Benefit Planning Consultants, notes that “in theory, one might be able to construct a limited investment menu that meets social goals and does not violate fiduciary standards, but I think it would be very difficult, if not impossible, to ever do it in practice.” Because adding additional filters to the investment menu could negatively affect returns, Wilberg says that “doing so could be a recipe for disaster.”

Envision 401(k) Advisors suggests on their website that “best practice” for firms that want to screen investments based on social or other factors is to offer a non-restricted choice in each asset class for which the plan is offering a restricted choice.

In short, even if Hobby Lobby were to offer employees the option to invest in mutual funds that did not include contraceptive companies, it seems nearly impossible for them to avoid offering at least some funds that include them.

5. Hobby Lobby could not tell employees to invest in “contraception-free” mutual funds even if they were offered. Although companies are permitted to provide general financial education to employees, they cannot advise participants how to specifically allocate their portfolio. Indeed, were a plan fiduciary – such as a company owner or a human resource officer - to give such advice to an employee, he or she could be held personally liable for any investment losses resulting from such advice.

Regardless of your personal views about the outcome of this week’s SCOTUS case, we should all at least acknowledge that the Hobby Lobby’s 401(k) plan does not reflect hypocrisy so much as it reflects the company’s efforts to comply with U.S. pension law.